When outward FDI creates jobs at home: the role of relative investment size and organizational capacity constraints

Abstract Outward foreign direct investment (OFDI) is often assumed to shift jobs abroad, yet evidence on its effects on firms’ domestic employment remains mixed. We argue that part of this variation can be explained by the organizational capacity constraints firms face when expanding internationally. Drawing on a Penrosean capacity-constraint perspective, we examine how the size of OFDI projects relative to firm size shapes domestic employment outcomes. Analyzing OFDIs by multinational enterprises from 13 emerging market economies, we find that the effect of OFDI on domestic employment strengthens at higher values of that relative size. This pattern reflects organizational capacity constraints at home, which become salient when firms undertake relatively large foreign expansion projects and require additional hiring. We also show that this relationship is moderated by establishment mode, state ownership, and regional orientation. The results suggest that not all OFDI projects yield the same domestic employment outcomes, highlighting the importance of firm-specific organizational constraints. OFDI projects representing approximately 10% to 20% of a firm's assets or sales produce the strongest domestic hiring effects. This study offers direct implications for policy design, suggesting that incentive schemes should account for firm-level capacity and relative investment scale rather than focusing solely on aggregate OFDI volumes.